The 25,000-Buck Question: Trump's Trade War Leaves Scant Winners
Trade skirmishes led by Trump generally yield unfavorable outcomes.
Take a gander at the state of the American economy, and you'll see Trump's trade policy has done a number on it. But it ain't just the States that's feeling the pain—financial markets worldwide are taking a hit too.
Here's the kicker: the real problem with tariffs isn't the tariffs themselves, but the dang rollercoaster of back-and-forth negotiations. Just a couple weeks back, Trump brought back the stiff tariffs he imposed on Liberation Day in early April, but this time only for 90 days. In those three months, he's got to rustle up "fair trade" deals with other countries, as he sees it.
As optimistic as that sounds, it's doubtful he'll seal the deal with all his trading partners. Plus, that 90-day reprieve doesn't apply to China, which has been dinged with import tariffs of up to 145% since the beginning. Negotiations with the world's heaviest economic powers may be underway, but an agreement looks far from reaching.
With Trump's erratic presidency, both American and foreign companies cannot plan for the medium term due to his stop-and-go approach. This uncertainty is likely to lead to hesitant investment decisions and a high degree of anxiety among consumers. Case in point: the US trade deficit soared to $140.5 billion in March, up 14% from the previous month.
Companies and consumers are racking up on imported goods before they get jacked up in price due to tariffs. But this is a quick fix at best. Tariffs in the long haul are bound to ding demand, since they'll drive up prices. Bad news for a consumer-driven economy like the USA, which is starting to see more and more consumers and economists anticipating a recession.
Higher prices on imported goods give American companies the green light to hike up their own prices. And tariffs are inflationary, to boot. The US Fed should theoretically lower interest rates to boost the economy, as Trump demands. But rising inflation might counteract that move.
It's not just the States reeling from these tariffs. In spite of the US government's denials, it's hard to find any victors in this trade war. The losses in global economic growth due to the unilateral tariffs on aluminum, steel, cars, and car parts, as well as country-specific tariffs and global import tariffs, will be sizeable and will be felt this year.
China's economy is facing hard times, as the US is gunning for Beijing more than any other nation in the trade policy crosshairs. While China can minimize the damage with fiscal and monetary stimulus measures, a sizable slowdown in growth to around 4% is expected in the Middle Kingdom this year.
Not even the Eurozone can shirk US tariffs. The impact on individual member countries varies drastically based on industry and export dependence. So, growth losses in Germany and Italy are more pronounced than in France and Spain.
The American stock markets have delivered their verdict on Trump's economic policy: the Wall Street has taken a significant nose-dive since the start of the year. The only winners here are none other than gold. The precious metal is having another go at benefiting from uncertainties in the financial markets and a weak dollar.
In this precarious climate, investors should consider funneling less than half of a 25,000-euro investment into stocks to shave risk. They'd be better off focusing on Europe rather than the USA. Other than the tariff uncertainty, the high valuations of American stocks make a solid case for a weaker weighting. Instead, a bigger slice of government and corporate bonds will offer stability to a portfolio. Gold is bound to keep appealing to central banks and private investors alike, so it's a safe bet in this market. And lastly, investors should maintain liquidity to capitalize on any potential price reversals.
Enrichment Data
The impacts of US trade tariffs on European economies vary, depending on factors such as the specific tariffs imposed, the sectors affected, and the extent of retaliation. Here's a quick rundown of country-specific insights:
Germany
- For being one of Europe's top exporters to the U.S., Germany is particularly vulnerable to tariffs affecting sectors like automotive and machinery. Estimates suggest a decline in economic output of just over 0.3% due to U.S. tariffs, assuming proportional retaliation.
Italy
- Sectors like automotive and machinery may face challenges due to tariffs, although Italy depends less on U.S. exports compared to Germany. The economic impact might be less severe than Germany's due to a more diversified economy, but it could still be significant in localized sectors.
France
- France has strong industry clusters in sectors like aerospace, which may be affected by supply chain disruptions due to tariffs. While France's economy is diverse, the impact of tariffs may be more about specific sectors like aerospace than overall GDP decline.
Spain
- As Spain is less directly exposed to U.S. tariffs compared to Germany and Italy, its economy may feel indirect effects through broader European economic conditions. The impact is likely to be less pronounced, but still noticeable.
- The community policy should provide guidance for businesses on navigating the uncertainties inherent in Trump's employment and trade policies.
- Investors may want to consider tips for personal-finance management, such as diversifying their portfolios and maintaining liquidity, in light of the outlook for increased inflation due to tariffs and potential recession.
- Finance experts could develop reports analyzing the impact of tariffs on employment policies in various industries, helping businesses make informed decisions about hiring and investment.
- In an effort to combat the negative effects of tariffs on the economy, the government could implement stimulus measures, such as tax breaks for affected industries or infrastructure projects to boost employment.
- Some economists suggest that countries affected by tariffs should adopt proactive strategies, such as increasing exports to other regions or negotiating free trade agreements, in order to mitigate the negative effects on their economies.
